Baby boomers may be retiring at the worst time in a generation as stock and bond yields have signaled weaker investments that past generations, according to a recent analysis from Bankrate.com.
Market data analyzed by Research Affiliates show that typical stock and bond investments might not support retiring baby boomers like they did 30 years ago.
A $1 million portfolio consisting of 60% stocks and 40% bonds is projected to run out of money in 25 years, according to Bankrate and Research Affiliate data. The portfolio could even run out sooner, Bankrate notes, depending on increases in inflation and interest rates.
For example, someone who retired in 1980 with $355,000 in a 60-40 stock-to-bond portfolio would have received an average annual return of 6.9% over 30 years, according to the analysis. Under this scenario, that person could have withdrawn 4% each year and the portfolio would have still grown to $1.3 million by 2010.
Retirees in 2013 may not be so lucky, as yields have fallen to around 2% for stocks and 10-year Treasury notes, notes Bankrate.
Returns on annuities have also taken a tumble lately as a result of lower interest rate.
In 1990, an annuity that guaranteed a lifetime income stream for a 65-year-old required an investment of about $9 for every $1 it paid back, according to the analysis. Twenty years later in 2010, it took a $15 investment for every $1 in guaranteed annual income—and that $1 had about half the buying power as it did in 1990 because of inflation.
Given the current marketplace for investments, as well as the ill-preparedness of many boomers, saving enough for retirement will take “a tremendous amount of effort,” writes Bankrate.
“Over their final few decades, boomers will need to draw on the same traits—flexibility, creativity and determination—that have characterized their generation,” writes Chris Kahn, the Bankrate.com analyst who prepared the report.
Written by Jason Oliva